Nvidia Has $71 Million Invested in These Smaller-Cap AI Stocks

Nvidia (NASDAQ: NVDA) is reporting tremendous demand for its graphics processing units (GPUs). It supplies these chips for gaming, data centers, automotive, and artificial intelligence (AI) researchers. All that demand is generating plenty of excess revenue for Nvidia and the company is looking for ways to put that money to good use. One way Nvidia capitalizes on these added funds is by making strategic investments in companies that help spread the adoption of its products.

Nvidia's third-quarter 13F filing showed it still held 1.7 million shares of SoundHound AI (NASDAQ: SOUN), a leader in voice assistance technology. It also revealed a new position in Applied Digital (NASDAQ: APLD), a fast-growing designer and builder of data centers. Both companies have a solid symbiotic relationship with Nvidia. Nvidia's investment in SoundHound had a value of $8 million at the end of the quarter, but it held a significantly larger investment in Applied Digital worth $63 million.

Here's why it might be worth following Nvidia into these two opportunities.

1. SoundHound AI

SoundHound AI is a small business with a market cap of roughly $2.3 billion at the time of writing. The stock has had a roller-coaster ride over the last few years, but the share price has nearly tripled over the last 12 months.

Demand continues to look strong for the company's AI-enabled voice technology. Revenue grew 89% year over year in Q3, driven partly by the additional revenue from the acquisition of Amelia, an enterprise AI software company that is helping SoundHound expand its technology to more markets outside of auto and restaurants. However, these core markets continue to provide tremendous momentum for the business.

Earlier this year, SoundHound and Nvidia teamed up to offer voice AI assistance through Nvidia's DRIVE platform. SoundHound also continues to see strong traction in the electric car market, with Stellantis using SoundHound Chat AI across seven of its car brands. Management is looking to expand its technology to financial services, healthcare, and retail companies.

The future looks bright, so the next step for SoundHound is to show investors it can deliver profitable growth. The company reported an adjusted net loss of $15 million in Q3, which was flat with Q2. However, management is forecasting a profit on an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) basis by the end of 2025.

The stock has the makings of a monster winner. Assuming it continues to see growing adoption across multiple markets and turns a profit in the next year or so, investors could earn tremendous returns in the coming years.

2. Applied Digital

Nvidia is seeing explosive demand for its GPUs, particularly from data centers. Applied Digital is a relatively small business that benefits from this opportunity. It has a market cap of just $1.8 billion at the time of writing, and the stock is up 112% over the last year.

Applied Digital builds data centers for AI, cloud services, and cryptocurrency mining. Revenue grew 67% year over year last quarter, and interest from large customers for 2025 and 2026 is starting to ramp up significantly.

As a smaller business, Applied Digital has limited resources. The business reported an adjusted net loss of $4 million last quarter, but that's where Nvidia's recent investment is pivotal for Applied Digital's growth prospects. The investment by Nvidia and other accredited investors helped strengthen the company's finances, which will ultimately fuel investments in high-return projects to drive more growth. The benefit for Nvidia is that it is contributing to the growth of more data centers, which ultimately means more sales for its GPUs.

Applied Digital aims to be a leader in operating multiple high-performance data centers. In its recent earnings report, it noted it was finalizing a lease agreement with a U.S.-based customer for a state-of-the-art, 369,000-square-foot facility that can handle AI workloads.

The cloud service business is also showing great potential. It generated nearly half the company's revenue last quarter. The cloud business helps companies access the computing power they need for AI applications, and it continues to see new opportunities to grow this business.

The company reported a profit of $20 million on an adjusted EBITDA basis in the quarter, and the stock is currently trading at an enterprise value-to-EBITDA ratio of 21 based on the current fiscal year's consensus EBITDA estimate on Wall Street. It's a reasonable valuation for a fast-growing technology company. Assuming Applied Digital continues to show improving profitability, the stock could deliver excellent returns in the coming years.

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John Ballard has positions in Nvidia and SoundHound AI. The Motley Fool has positions in and recommends Nvidia. The Motley Fool recommends Stellantis. The Motley Fool has a disclosure policy.